Indian ADRs Post Biggest Drop in a Week on Budget Concerns

March 1 (Bloomberg) -- Indian shares traded in New York
dropped the most in a week, following shares in Mumbai lower,
amid concern the nation’s budget lacks measures to curb
expenditure key to containing the fiscal gap. Stock futures fell
in Singapore and rupee forwards sank to near a six-week low.

The Bank of New York Mellon India ADR Index tumbled 1.8
percent to 1,111.51 in New York, capping a 2.8 percent monthly
decline, its biggest since October. SGX CNX Nifty index futures
for March delivery fell 0.6 percent to 5,726 at 9:59 a.m. in
Singapore. The underlying Nifty index slumped 1.8 percent
yesterday, the biggest loss since May 8. The S&P BSE Sensex sank
1.5 percent to 18,861.54, ending February with a drop of 5.2
percent, its first monthly loss since October.

India is targeting a shortfall of 4.8 percent of gross
domestic product in the year starting April 1, and posted a 5.2
percent gap in 2012-2013, Finance Minister Palaniappan
Chidambaram said in parliament yesterday. He allocated 330
billion rupees ($6.1 billion) for a rural jobs program and 100
billion rupees for a plan to give the poor food grains, before
elections next year. That’s raised concern the 4.8 percent
fiscal-gap goal may not be met.

“The main issue, that of curbing expenditure, hasn’t been
tackled,” Jeff Chowdhry, head of emerging-market equities at
U.K.-based F&C Asset Management Plc., which oversees about $150
billion, told Bloomberg TV India yesterday. “Expectations which
have been heightened in the last few months, particularly in
terms of tackling the budget deficit, haven’t been followed
through. There’s not much in it for the market or the economy.”

GDP Data

The rupee’s one-month non-deliverable forwards dropped 0.2
percent to 54.90 per dollar in Tokyo. The currency may weaken to
55 per dollar in three months, Goldman Sachs forecast.

Total expenditure will climb to 16.7 trillion rupees in
2013-2014 from an estimated 14.3 trillion rupees this financial
year, Chidambaram said. The budget set gross market borrowing at
a record 6.29 trillion rupees for 2013-2014, an increase of
almost 13 percent. Net borrowing will be 4.84 trillion rupees.

“The increase in expenditure should be supportive of
growth,” Neelkanth Mishra and Ravi Shankar, analysts at Credit
Suisse Group AG, wrote in a report e-mailed today. “However,
boosting consumption with investment remaining weak could hurt
the current-account deficit and therefore the currency.”

Expenditure Control

While a transaction tax on equity futures was pared to 0.01
percent from 0.17 percent, Chidambaram imposed a one-year 10
percent tax surcharge on personal incomes above 10 million
rupees and raised the levy on some companies to 10 percent.

GDP expanded 4.5 percent in the December quarter, trailing
the median estimate of 4.9 percent, official data showed after
markets closed. That’s the slowest pace since the three-month
period through March 2009, data compiled by Bloomberg show.

“To meet the fiscal deficit number, revenue needs to grow
at 20 percent, a challenge given the moderate growth rate, and
would need continued expenditure control,” Rajat Jain, chief
investment officer at Principal PNB Asset Management Co. in
Mumbai, said by e-mail. “There are no major initiatives, which
is not surprising given that it is a pre-election budget. It is
going to be more about execution.”

Bad Loans

ICICI, India’s second-largest lender by assets, fell to
$41.92 in New York, with trading volumes 2.4 times the daily
average over the past three months. The shares lost 4 percent to
1,040.4 rupees, or $19.10, in Mumbai, the lowest level since
Nov. 27. One ADR represents two ordinary shares.

State Bank of India sank 6 percent to 2,080.9 rupees, the
most in a year. The S&P BSE Bankex of 14 lenders slumped 3.6
percent, the sharpest drop in a year, amid concern the budget’s
continued focus on growth in farm credit may keep bad loans
elevated, Ananda Bhoumik, senior director at a local unit of
Fitch Ratings, said by e-mail.

The budget set an agriculture credit target of 7 trillion
rupees even as the nation expects to exceed the 5.75-trillion
rupees target this year ending March.

‘Resilient Flows’

The government has stepped up efforts to revive growth and
cool inflation of almost 7 percent under policy changes since
September. The measures have prompted foreigners to purchase a
net $8.48 billion of local shares this year, a record for the
period, data compiled by Bloomberg show. Overseas funds bought a
net $155 million of Indian stocks on Feb. 27, data from the
market regulator show.

“Inflows have historically been reasonably resilient to
slowdown in markets or GDP growth,” Shankar Sharma, joint
managing director at First Global Stockbroking Ltd., said in an
interview with Bloomberg TV India. “I don’t think the flows
will go into negative territory or slowdown significantly. India
is a large market and overseas investors need an allocation.”

Rollovers in Nifty futures to the March series were 54.5
percent at 6:01 p.m. yesterday, compared with 64.4 percent for
January series, the data show. Derivative contracts in India
expire on the last Thursday of the month.